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2019 (10) TMI 137 - AT - Income TaxLevy of penalty u/s 271(1)(c) - addition made during the assessment proceedings u/s 41(1) - as outstanding credit balance in the accounts of two parties, holding that the same had ceased to exist - HELD THAT:- In the present case we find that both the requirements of the section are not fulfilled. The Ld.CIT(A) himself has recorded a finding of fact that the impugned liabilities do not represent any trading liability since the assessee had never commenced business and had therefore never incurred any operational expense or earned any income. CIT(A) has gone on to mention the assesses explanation that these liabilities represented advances given by the two creditors for setting up business of the assessee, but has not controverted the same nor found any falsity in the same. Therefore even as per the Ld.CIT(A) the liabilities did not represent any expense, allowance or loss claimed earlier by the assessee. Further we find that that there is nothing on record to show that the liabilities ceased to exist in the impugned year. In fact we find the assessee had contended that the parties had written off the amounts in earlier years. And on the basis of this admission of the assessee the Revenue derived that the liabilities ceased to exist, but there is no finding, when. The entire case of the Ld.CIT(A) for treating the same as income u/s 41(1) of the Act, rests on the fact that the amounts represent liabilities and the facts demonstrate that they cease to exist. But this is not sufficient to treat the amount as profits and gains of business for the year as required by section 41(1), as pointed out above by us. There was no legally sustainable basis with the Revenue for making the addition u/s 41(1) of the Act. As a corollary therefore it cannot be said that the assessee had furnished inaccurate particulars of income or concealed particulars of income in relation to the addition made, so as to attract levy of penalty u/s 271(1)(C) of the Act. The penalty so levied is therefore directed to be deleted. - Decided in favour of assessee.
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